Commissioners of Customs and Excise v Wellington Private Hospital Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 26 April 1995 |
| Date | 26 April 1995 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Jowitt J.
Kenneth Parker QC (instructed by the Solicitor for Customs and Excise) for the Crown.
David Milne QC and Rupert Baldry (instructed by Dibb Lupton Broomhead and Stephenson Harwood) for Wellington Private Hospital and St Martins Hospital.
Roderick Cordara QC (instructed by BUPA Legal Department) for BUPA.
The following cases were referred to in the judgment:
Bophuthatswana National Commercial Corp Ltd v C & E CommrsVAT[1993] BVC 194
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
Craven (HMIT) v White & Ors ELRTAX[1989] AC 398; [1987] BTC 226 (CA)
EC Commission v United Kingdom VAT(Case 353/85) [1987] ECR 817; (1988) 3 BVC 265
Franklin v IR Commrs WLR[1971] 1 WLR 995
Imperial Chemical Industries Ltd v Caro WLR[1961] 1 WLR 529
Littman v Barron (HMIT) ELR[1951] Ch 993
Marleasing SA v La Comercial Internacional de Alimentación SA(Case C-106/89) [1990] ECR I-4135; [1989] 1 CEC 124
R v International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd, ex parte Else (1982) Ltd ELR[1993] QB 534
Rayner & Keeler Ltd VAT(1991) VATTR 532; [1991] BVC 1346
Roberts v Littlewood's Mail Order Stores LtdELR[1943] KB 269
Webb v Emo Air Cargo (UK) Ltd WLR[1993] 1 WLR 49
Value added tax - Zero-rated and exempt supplies - Drugs and medicines - Private hospitals - Goods supplied in connection with provision of exempt health care and medical treatment - Drugs provided for patients by hospitals and prostheses fitted by surgical intervention - Whether separate supply of goods or whether part of composite supply of medical or surgical treatment - Whether drugs were "dispensed" and "on the prescription of" a medical practitioner - Whether supplies exempted by EC law could be zero-rated - Value Added Tax Act 1983, Sch. 5, Grp. 14, items 1 and 2(a); Sch. 6, Grp. 7, items 1 and 4 (Value Added Tax Act 1994 schedule 8 group 12 schedule 8 group 12Value Added Tax Act 1994, Sch. 8, Grp. 12, items 1 and 2(a); Value Added Tax Act 1994 schedule 9 group 7 schedule 9 group 7Sch. 9, Grp. 7, items 1 and 4); sixth VAT directive (Directive 77/388) of 17 May 1977 (OJ 1977 L145/1),eu-directive 77/388 article 13(A)(1) article 13(A)(1)art. 13(A)(1)(b), (c).
These were appeals by Customs against three decisions of the VAT tribunal allowing appeals by three private hospitals ((LON/92/2203) No. 10,267; [1993] BVC 993;(LON/92/3260) No. 11,548; [1995] BVC 1365;(LON/93/1735) No. 12,180; [1995] BVC 996). The tribunal held that drugs supplied to in-patients were zero-rated supplies of goods. BUPA appealed against the decision of the tribunal that certain goods and services supplied in connection with the fitting of prostheses by surgical intervention were not zero-rated.
The three taxpayers all operated private hospitals. Wellington and St Martins charged all patients separately for room, food and nursing service; each use of investigative and theatre facilities; and each drug administered to the patient, while some BUPA patients took advantage of fixed price surgery, an inclusive price being charged for all the goods and services provided for the patient, including drugs. It was agreed that whether the patient was charged on a fixed price basis or otherwise made no difference to the application of VAT law.
In each hospital drugs were kept in the hospital pharmacy as well as at various locations, in the operating theatre and on the wards. All the drugs were monitored and under the control of the pharmacist. Until administered to a patient all drugs remained the property of the hospital and were regarded as being in the custody of the pharmacist. There were two ways in which drugs could be provided to a patient. The first was from the stock. The drug would appear on the patient's prescription sheet but there would have been no special dispensing in the name of the patient. The second way of providing drugs was when the pharmacist received a prescription from a consultant for a non-stock drug which he then dispensed specifically in response to that prescription and in the name of the patient.
Operations involving the fitting of prostheses by surgical intervention were carried out in BUPA hospitals. These included splint lumbo-sacral fusion of adjacent vertebrae to prevent them moving in relation to each other; the plating of fractures to hold fractured bones together; and hip joint replacements.
The first question was whether the VAT tribunal was right in holding that the supply of drugs to hospital in-patients was a supply separate from the exempt supply of medical care and that the separate supply fell within the Value Added Tax Act 1983, Sch. 5, Grp. 14, item 1 which zero-rated goods dispensed by a person registered as a medical practitioner under the relevant legislation.
The second question, in relation to BUPA only was whether the supply and fitting by surgical intervention of prostheses to hospital in-patients fell within the Value Added Tax Act 1983, Sch. 5, Grp. 14, item 2(a) which zero-rated the supply to a handicapped person of medical or surgical appliances designed solely for the relief of a severe abnormality or injury. The VAT tribunal held that such prostheses were in principle capable of falling within that provision. However, the tribunal decided in particular that splint lumbo-sacral fusion was not designed solely for the relief of severe abnormality or injury but might be used to deal with other functions or conditions, nor did the plating of fractures qualify for zero-rating because the patient might not rank as a handicapped person.
A further question arose in relation to the Value Added Tax Act 1983, Sch. 5, Grp. 14, item 7 which provided that services necessarily performed in the installation of appliances specified in item 2 were zero-rated. The tribunal held that the fitting of a replacement hip joint by surgical intervention fell within item 7, but not every service that a patient received while in hospital to undergo a hip replacement was a service necessarily performed in its fitting. For example, the cooking and serving of food and other general services supplied were not necessarily performed in fitting the hip replacement joint.
It was common ground that the supplies in dispute would in any event fall within the exemption provided by the Value Added Tax Act 1983, Sch. 6, Grp. 7, item 4.
The hospitals contended that supplies of goods in connection with medical or surgical treatment in hospital were supplies separate and distinct from the supplies of hospital and medical care exempted byeu-directive 77/388 article 13(A)(1)art. 13(A)(1) of the sixth VAT directive, which was implemented by the Value Added Tax Act 1983, Sch. 6, Grp. 7, item 4. As separate supplies the drugs were zero-rated by the Value Added Tax Act 1983, Sch. 5, Grp. 14, item 1 and the prostheses by item 2(a).
Customs' main submission was that the relevant provisions of the Value Added Tax Act 1 983, Sch. 5, Grp. 14 related to the supply of goods. However, their supply in the factual context of the present appeals had been categorised by the Court of Justice of the European Communities as one of services within eu-directive 77/388 article 13(A)(1)art. 13(A)(1)(b) of the sixth VAT directive and it was not permissible to treat such a supply as one of services for the purpose of exemption and as one of goods for the purpose of zero-rating. Although the European Court had considered eu-directive 77/388 article 13(A)(1)art. 13(A)(1)(c), their conclusions applied equally to eu-directive 77/388 article 13(A)(1)art. 13(A)(1)(b). Accordingly, all the supplies goods in dispute were supplies integral and part of the exempt supplies of services.
Held, allowing the appeals by Customs and dismissing the appeal by BUPA.
1. Having regard to Community law, the Value Added Tax Act 1983, Sch. 6, Grp. 7, item 4, which was enacted to give effect to both indent (b) and (c) of eu-directive 77/388 article 13(A)(1)art. 13(A)(1) of the sixth VAT directive, should be construed as referring to a single supply, being a supply of services.EC Commission v United Kingdom (Case 353/85) VAT(1988) 3 BVC 265 applied.
2. Under UK law, the question whether the Value Added Tax Act 1983, Sch. 6, Grp. 7, item 4 referred only to a supply of services or to supplies of both goods and services was a question of law and a matter of impression. It could not be said that a patient went into hospital simply to be supplied with medication or to purchase goods such as an artificial hip joint. The supply of goods was an integral part of medical or surgical treatment. No separate supply of goods was made.
3. The fiscal character of the supply of drugs and prostheses, which as a question of fact fell within the provision, could not be changed by saying that the words used in the Value Added Tax Act 1983, Sch. 5, Grp. 14, item 1 were apt to include the supply of drugs by the hospitals.
4. The words used in Sch. 5, Grp. 14, item 2 of the 1983 Act were not apt to include the supply of a prosthesis which had to be fixed in place by a surgical procedure carried out in hospital. Further, the fitting of a prosthesis could not be zero-rated pursuant to Grp. 14, item 7 if the supply of the prosthesis itself was not zero-rated; item 7 was intended to extend the exception of zero-rating to the installation of appliances whose supply also attracted the same exception.
Per curiam: having regard to the provisions of the Medicines Act 1968, had the supply of goods been a separate supply, drugs supplied as a result of dispensing by the hospital pharmacist in the name of a particular patient would have come within the Value Added Tax Act 1983,...
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